Mind over money: Emotions affect financial decisions

All the rational financial discussions in the world won't get you to your goals if you don't understand the role your emotions play when it comes to money.

That thought came to mind as I wrote a recent column about stock market diversification. I wondered how many people would have the discipline to sell into a bull market and take some profits. Or would they wait until panic took over in a market decline?

Self-discipline is the essence of all decision making. And when it comes to financial decisions most people find it difficult, if not impossible, to let their brains rule their emotions -- especially the emotions of fear and greed.

No one explains that better than Denise Shull, author of "Market Mind Games: A Radical Psychology of Investing, Trading and Risk." Shull has pioneered the application of neuroscience to the field of investing.

As her website, TheRethinkGroup.net, explains, Shull translates "the latest neuroscience of risk and high performance into actionable tactics for elite performance." She coaches Wall Street professionals to help them "solve the enduring riddles of trading and investing behavior."

In fact, Shull served as the role model for "Wendy," the trading adviser at the core of the popular cable series "Billions." The character's role in the series is to keep a bold hedge fund manager from self-destructing in the stress of the markets. Shull consulted with the actress who plays Wendy to make the role realistic.

Some of Shull's advice to the pros works for ordinary investors as well. In fact, I cited her studies in "The Savage Truth on Money." I wrote: "Shull postulates that human emotions travel faster to the brain decision centers than rational thoughts. Thus, many investment decisions are made because the brain is overwhelmed by an emotional reaction that outweighs rational decision making." There's a physical reason that most investors act irrationally!

In fact, emotions impact not only investment success, but your entire economic life. That's the premise of Ellen Rogin, Chicago based certified financial planner, CPA and self-described "abundance activist." She is the author of "Picture Your Prosperity" and another best-seller, "Great with Money."

While Rogin does traditional financial planning, she focuses on helping people understand their money personalities and how they influence financial decision-making. Her latest newsletter is headlined "Don't Be Fooled by Fake Money News." She's not calling out the press but rather calling attention to the false stories inside our heads.

"What you think and say to yourself about money has a huge impact on what shows up in your life," Rogin says.

Do you find yourself saying you simply "don't have a head for money" or that "investing is scary"? Do you indulge yourself into debt or live in fear of enjoying the money you worked for? All are ways, says Rogin, that we plant false and debilitating money stories inside our minds.

It's not your fault that you've drawn unhelpful conclusions. You're a creature of your experiences, from your youngest days. Living in a household with parents who fought about money or having known the hardship that comes from a sudden job loss or unexpected family medical bills can shape your money personality.

The secret is to recognize those subconscious influences and set up strategies to overcome your worst fears and unconscious liabilities. Rogin recommends asking yourself three questions:

Is this thought helpful or hindering?

Is this really true? (And, if it is true, how can you make it "not true"?)

Is there a more supportive thought I can have?

You're not stuck with the scenarios that play in your mind. But you may need help to get beyond them. That's the role of a good financial adviser.

Whether you're a professional trader making million-dollar decisions in a split second or an "average Jane" who has to make financial planning and retirement investing decisions, what matters most is your ability to understand yourself, overcome your emotions and stick to a disciplined financial plan.

Financial success is truly an issue of mind over money. And that's The Savage Truth.

(Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.)